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Economic growth and human development: Evidence from Zambia

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DOI: 10.1002/sd.1953

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Received: 9 November 2018 Revised: 27 February 2019 Accepted: 9 March 2019
DOI: 10.1002/sd.1953

RESEARCH ARTICLE

Economic growth and human development: Evidence from

Zambia

Sydney Chikalipah1 | Daniel Makina2

1
Department of Finance and Tax, University of
Cape Town, Cape Town, Republic of South Abstract
Africa In this paper, we examine the two‐way relationship between economic growth and
2
Department of Finance, Risk Management
human development in Zambia over the period 1970 to 2015. By applying the
and Banking, University of South Africa,
Pretoria, Republic of South Africa cointegration and vector error correction model techniques, our estimates demon-
strate, in the first instance, that economic growth and human development are
Correspondence
Sydney Chikalipah, Department of Finance and cointegrated. Second, there is no evidence of two‐way causal effect observable
Tax, University of Cape Town, Robert Leslie
between economic growth and human development in the short run. In marked con-
Social Science Building, Upper Campus,
Rondebosch 7701, Cape Town, South Africa. trast, we find that economic growth has long‐run effect on human development, with
Email: chksyd002@myuct.ac.za;
no evidence of reverse causality. This shows that the endless fixation on economic
chikalipah@icloud.com
growth has manifestly and consistently proven that GDP growth has had sluggish
multiplier effect on inclusive development in Zambia. Finally, we draw country‐
specific policy recommendations from our empirical findings.

K E Y W OR D S

cointegration, economic growth, human development, sustainable development, VECM, Zambia

1 | I N T RO D U CT I O N The effect of economic growth on human development is often

There is a growing momentum among academics to think beyond GDP
and focus on human development, mainly health and education
(Dempsey, Bramley, Power, & Brown, 2011; Hopwood, Mellor, &
O'Brien, 2005). In the literature, there is no consensus regarding the
direction of causality between economic growth and human develop-
ment (Mustafa, Rizov, & Kernohan, 2017; Suri, Boozer, Ranis, &
Stewart, 2011). However, growing evidence from empirical studies,
such as Anand and Sen (2000); Fosu (2015); Ranis and Stewart
(2012); and Ranis, Stewart, and Ramirez (2000), have established a
significant relationship between economic growth and human devel-
opment. Most recently, there has been renewed interest in studying
the relationship between economic growth and individual elements
of human development such as education and health (see inter alia,
Benos & Zotou, 2014; Hanushek, 2013; Kalemli‐Ozcan, 2012; Lawal
& Iyiola, 2011; Lewis, 2013).
achieved through coherent policy initiatives (Anand & Sen, 2000).
Specifically, progress in human development entails investing in educa-
tion, health, and nutrition (Nguefack‐Tsague, Klasen, & Zucchini, 2011).
The causal effect running from economic growth to human develop-
ment is postulated to be attained through two paths: (a) the influence
of growth in household income and propensity to spend on items that
are related to human development, for example, on health and educa-
tion; and (b) the effect of growth in government expenditure on key
constituents of human development (Bilbao‐Ubillos, 2013; Felice &
Vasta, 2014; Fosu, 2015). On the other hand, human development
influences economic growth in the following ways: (a) through eco-
nomic productivity and savings gained from well‐educated and healthy
citizenry, and (b) through a country having high‐skilled worker force
that could stimulate trade through increased exports that, ceteris
paribus, could result in the acceleration of economic growth (Bloom &
Mahal, 1997; Harttgen & Klasen, 2012; Nguefack‐Tsague et al., 2011).

Sustainable Development. 2019;27:1023–1033. wileyonlinelibrary.com/journal/sd © 2019 John Wiley & Sons, Ltd and ERP Environment 1023
1024
We study the two‐way relationship between economic growth and
human development in Zambia over a 46‐year period, spanning from
1970 to 2015. Zambia is Africa's second largest copper producer and
placed eighth in the world, yet the country is routinely mentioned as
a lesson on the perils of having a chronic overreliance on copper min-
ing; any unanticipated weakening in copper prices often induces unde-
sirable economic consequences (Bova, 2012; Chipili, 2016). Copper is
a significant source of foreign exchange for Zambia, accounts for
over 70% of total export earnings (Chipili, 2016; Kragelund, 2017).
Evidently, the slump in commodity prices witnessed in the 1970s,
1990s, and most recently in 2015 almost brought the Zambian econ-
omy to a total collapse (Chirwa & Odhiambo, 2017; Chitonge, 2016).
Economic growth has not invariably and automatically translated into
stellar human development, particularly among many African
commodity‐exporting countries (Chitonge, 2016; Odhiambo, 2009).
To illustrate this, between 1970 and 2015, the Zambian economy
materially expanded by 152%, whereas human development improved
by a mere 38% in the same period. Inequality, as measured by the Gini
index, marginally deteriorated from a coefficient of about 0.50 in 1970
to 0.58 in 2015 (Caraballo, Dabús, & Delbianco, 2017; Mahmood &
Noor, 2014; United Nations Development Programme [UNDP], 2015).
It is against this background that this study extends and builds on
the earlier work by Suri et al. (2011) and Ranis et al. (2000) and
focuses solely on Zambia. Specifically, Zambia offers an ideal labora-
tory for this kind of empirical investigation due to the following rea-
sons. The exponential growth in the population of Zambia witnessed
in the past decades, which averaged about 3%, coupled with the
projected rapid growth in population in the future decades, will
undoubtedly compromise sustained growth in human development
(UNDP, 2015). Furthermore, rapid population growth is ordinarily
associated with high incidences of poverty, low life expectancy, and
low per capita spending on health and education (Kelley, 1988). Not
surprisingly, Zambia is among the top five countries in Africa with
the highest percentage of the youth population, about 50% (Brass,
2015; Hall, Dawson, Macdiarmid, Matthews, & Smith, 2017).1 There-
fore, investigating the two‐way relationship between economic
growth and human development in Zambia would contribute to the lit-
erature on the subject matter.
We estimate the dynamic relationship between human develop-
ment and economic growth using three empirical approaches: (a)
Gregory–Hansen cointegration; (b) Johansen cointegration; (c)
Stock–Watson dynamic ordinary least squares (DOLS); and (d) vector
error correction model (VECM). Our baseline results show that (a) eco-
nomic growth and human development are cointegrated; (b) there is
no evidence of dual causality that is observable between economic
growth and human development in the short run; and (c) in stark
1 2
The rate at which central governments are investing in health and education of the youth
population is outpaced by the rate at which the youth population is growing in Africa and
Zambia in particular (Bongaarts, 2016). Consequently, that poses a huge risk for the youth
population to reach their full productive potential. Moreover, there is rising population of
the unemployed youth in Zambia and Africa as a whole (Anyanwu, 2014; Brass, 2015; Hove,
Ngwerume, & Muchemwa, 2013).
CHIKALIPAH AND MAKINA
contrast, we found that economic growth has long‐run effect on
human development, with no evidence of reverse causality.
The rest of the paper proceeds in the following manner. Section 2
provides a discussion of the Zambian context, particularly concentrat-
ing on the economy and human development. Section 3 reviews rele-
vant empirical studies by focussing on the relationship between
economic growth and human development. Thereafter, Section 4 pre-
sents the simple endogenous growth model that underpins our study.
Section 5 describes the empirical strategy and the data used for our
series. In Section 6, empirical results are outlined and discussed, and
Section 7 offers concluding remarks. Detailed econometric specifica-
tions and additional empirical results are confined to Appendix A.
2 | THE ZAMBIAN CONTEXT
Since the end of colonial rule in 1964, the Zambian economy is predom-
inantly based on the extraction of minerals, mostly cobalt and copper
(Fessehaie, 2012; Whitworth, 2015). From 1970 to 2015, the mining
sector accounted for over 70% of export revenue, an indication of the
absolute dominance of the mining sector (Chitonge, 2016). The indus-
trial value‐added portion is the largest contributor to real GDP, and this
averaged about 43% per annum in the same period. In addition, services
and agriculture sectors averaged 41% and 16% per annum between
1970 and 2015, respectively (Chirwa & Odhiambo, 2015).
Notwithstanding the endowment of mineral wealth, poverty levels
in Zambian are stubbornly high. It is estimated that over 60% of the 16
million people live below the poverty line, with almost half of the pop-
ulation being youth below the age of 15 years.2 Over the years, there
has been a strong correlation between economic growth and popula-
tion in Zambia. For example, between 1970 and 2015, the Zambian
economy expanded at an average annual rate of about 3.3%, whereas
population increased at an annual average rate of around 2.8%
(Brueckner & Schwandt, 2014; Chirwa & Odhiambo, 2015).
Agriculture activities are the source of livelihood for over two
thirds of the population in Zambia. Gloomily, agriculture productivity
has significantly plummeted from USD 830 per worker in 1970 to
USD 470 in 2015 (Chitonge, 2016). Taken together, the other sectors
of the economy have all declined in productivity per worker in the
same period, with the exception of the manufacturing sector
(Chitonge, 2016; Kragelund, 2017). The main challenges to inclusive
and sustained growth in Zambia are underdeveloped infrastructure
services, low quality of human capital, high financial exclusion—about
60% of adult population lack access to formal banking institutions,
weak political institutions, and unfavourable business environment
(Chikalipah, 2019).
In many countries in Africa, if not all, youth unemployment is a serious challenge, and the sit-
uation has been worsening over the years. Above all, youth unemployment contributes to a
cycle of poverty (Resnick & Thurlow, 2015; Simpasa, Shimeles, & Salami, 2015). It is striking
to note that thousands of youth enter the workforce every single day in Zambia. Linked to
this is perhaps the facts that of 5.8 million employed in Zambia, only 16% are in the formal
sector, with the rest working in the informal sector of the economy (CSO, 2015).
CHIKALIPAH AND MAKINA 1025

Turning to human development, Zambia has consistently been However, there is a growing body of evidence that shows a robustly
spending less than 4% of GDP on both education and health sectors positive relationship between education and economic growth (Barro,
in the last two decades. Correspondingly, the rapid growth in popula- 2001; Dauda, 2010). Similarly, Gallup and Sachs (2001) claimed that
tion often compromise any meaningful improvement in human devel- eradicating malaria in sub‐Saharan Africa (SSA) could increase per
opment in Zambia (Hall et al., 2017; Kelley, 1988). Since the 1970s, capita growth rate of the continent by approximately 2.6% a year.
education standards have been falling due to the lack of investment Bloom, Canning, and Sevilla (2004) argued that good health has a
in the sector (Ali & Jabeen, 2016; Chirwa & Odhiambo, 2015; positive, sizeable, and statistically significant effect on economic
Luchembe, 2016). On the other hand, health indicators have shown growth. A study by Gyimah‐Brempong and Wilson (2004) suggested
some improvement since the 2000s (Mara, 2016).3 Improvement in that 22% of the transition growth rate of per capita income in SSA
health is partly owed to international donor organisations that sub- countries can be attributed to human health capital. Similarly, Narayan,
stantially support the health sector of Zambia (Achoki et al., 2017; Narayan, and Mishra (2010) investigated the relationship between
Mwisongo, Soumare, & Nabyonga‐Orem, 2016). health and economic growth within the production framework and
found that the two variables share a long‐run relationship. By contrast,
Acemoglu and Johnson (2007) claimed that improvement in popula-
3 | A RE V I E W OF E M P I RI C A L L I T E R A T U R E
tion health and economic growth were negatively correlated over
the period 1940 to 2000. Interestingly, Bloom, Canning, and Fink
There are limited empirical studies that focus on investigating the
(2014) revisited the study by Acemoglu and Johnson (2007) and con-
dynamic link between human development and economic growth
cluded that improvement in health displays a positive association with
among African countries. A study by Ranis et al. (2000) investigated
economic growth. They further argued that Acemoglu and Johnson
the relationship between economic growth and human development
(2007) results were mostly driven by their prior exclusion of initial life
in developing countries (excluding Zambia) and found a significant
expectancy from the economic growth model. Finally, Acemoglu and
relationship between the two variables in both directions.4 In a related
Johnson (2014) re‐estimated their model reported in their earlier
study, Suri et al. (2011) concluded that human development plays an
study and concluded that their main results are robust and that there
essential role in determining sustained growth in poor countries. Most
is no evidence that increase in life expectancy between 1940 and
recently, Mustafa et al. (2017) explored the three‐way relationship
2000 had a positive effect on GDP per capita growth.
between economic growth, human development, and openness to
Lastly, we examine the literature that presents evidence on the
trade in a large panel of 12 developing Asian countries. They found
relationship between economic growth and natural resources extrac-
no evidence indicating economic growth having a positive influence
tion, particularly among African countries. Deaton (1999) claimed that
on human development between 1970 and 2011.5
commodity‐exporting African countries do economically better when
A recent study by Chikalipah and Okafor (2019) found evidence
the prices of commodities are rising than when they are falling. Simi-
that suggests that economic growth and human development share
larly, Mehlum, Moene, and Torvik (2006) showed that natural
a long‐run relationship in Nigeria. A slightly similar study by Lawal
resources promote growth in countries with strong institutions but
and Iyiola (2011) examined the relationship between education and
lower growth in countries with weak institutions. An identical conclu-
economic growth in Nigeria over the period 1980 to 2008 and found
sion was reached by Collier and Goderis (2012) who showed that
that education investment has a direct and significant impact on eco-
commodity booms have an unconditional positive short‐term effect
nomic growth. The exact opposite findings were reported by (a) Ndiyo
on economic growth. In contrast, Brunnschweiler and Bulte (2008)
(2007) and (b) Nurudeen and Usman (2010). Equally, Pritchett (2001)
argued that resource dependence does not affect growth. Sala‐i‐
found insignificant relationship between education and economic
Martin and Subramanian (2013) drew similar conclusions and showed
growth in 91 countries between 1960 and 1987. Benos and Zotou
that natural resources extraction has a negative and significant rela-
(2014) applied a meta‐analysis to 57 studies and concluded that the
tionship with economic growth in Nigeria and that the inverse rela-
genuine growth effect of education is not homogenous across studies.
tionship is exacerbated by poor institutions. In essence, this is
natural resource curse argument articulated in the literature.
3
Health indicators, such as: maternal mortality, HIV and AIDs prevalence, child mortality and
under‐five mortality (Colson et al., 2015).
4
The following are developing countries sampled in the study: (a) sub‐Saharan African coun- 4 | T H E O R E T I C A L M O DE L
tries: Benin, Botswana, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad,
Congo Republic, Congo Democratic Republic, Cote d'Ivoire, Gabon, Ghana, Kenya, Lesotho,
Madagascar, Malawi, Mali, Mauritius, Niger, Nigeria, Rwanda, Senegal, Sierra Leone, South
In this section, we describe the medium‐run and long‐run implication
Africa, Sudan, Tanzania, Togo, Zimbabwe. (b) Latin America & Caribbean: Argentina, Barbados, of increased human development in the closed‐economy neoclassical
Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Haiti,
endogenous growth model (Solow, 1955, 1956). Economy i has the
Honduras, Jamaica, Mexico, Nicaragua, Panama, Paraguay, Peru, Trinidad & Tobago, Uruguay
and Venezuela. (c) South Asia: India, Nepal, Pakistan, Sri Lanka and Bangladesh. (d) East Asia: constant return to scale aggregate production function
China , Hong Kong, Indonesia, Korea Republic, Malaysia, Myanmar, Philippines, Singapore and
Thailand. (e) North Africa and Middle East: Algeria, Egypt, Morocco and Turkey. Y it ¼ ½Ait Hit α K βit Lit1−α−β ; (1)
5
The 12 Asian developing countries included in their sample are Bangladesh, China, India,
Indonesia, Malaysia, Nepal, Pakistan, Philippines, Singapore, South Korea, Sri Lanka, and
where α+β ≤ 1, Yit represents the level of output produced in
Thailand. time t and economy i, Kit signify capital, Lit depicts the supply of land,
1026
and Hit is the effective unit of labour given by Hit = hitNit, where Nit is
total population (and employment) and ht is human capital per person.
For simplicity and without loss of generality, we normalise Lit = Li = 1
for all i and t. Therefore, improvement in human development
increases output (growth), achieved through health and skilled popula-
tion of an economy i. Moreover, progress in human development in
economy i promotes rapid human capital accumulation or direct posi-
tive effects on total factor productivity (TFP).
Finally, the model specified in Equation (1) intuitively posits that
increase in human development will raise income per capita and exert
positive effect on total factor productivity, and hence increase in out-
put captured by Yit. In the context of Zambia, we suspect that the gov-
ernment revenue from copper is invested in the health and education
sectors. For that reason, the causal effect between the two variables
could run in both directions: on the one hand, from human develop-
ment to economic growth, and on the other hand, from economic
growth to human development (Strauss & Thomas, 1998). This
assumption is the justification for using an estimating framework that
captures the two‐way causal effect between economic growth and
human development.
5 | E M P I R I C A L ST R A T E G Y A N D D A T A
SELECTION
To study the two‐way relationship between economic growth and
human development, we first adopt a unified statistical framework
of Johansen cointegration and VECM (Johansen, 1991, 1998;
Johansen & Juselius, 1990; Perron & Vogelsang, 1992; Pesaran, Shin,
& Smith, 2000). This approach has two superior advantages compared
with other estimation techniques. First, the VECM allows us to jointly
estimate the two‐way short‐ and long‐run relationship between the
two variables. Second, our approach significantly averts the potential
model misspecification (Hamilton, 1994; Kennedy, 2008). We then
evaluate the robustness of our results by exploiting the Gregory–
Hansen cointegration technique with multiple structural breaks (Greg-
ory & Hansen, 1996; Hansen, 2000). Next, we analyse the long‐run
relationship between human development and economic growth using
the Stock–Watson DOLS estimator.
5.1 | Empirical specification: The VECM framework
The VECM is a maximum likelihood procedure, and it incorporates
short‐run dynamics with long‐run equilibrium among variables. Addi-
tionally, the model does not require a prior assumption of endogeneity
and normalisation of variables (Kim, 1998; Maysami & Koh, 2000).
Thus, the VECM is of the form
′
ΔXt ¼ ∑k−1
j¼1 Πj ΔX t− j þ αβ X t−k þ ω þ ηt ;
′
where ∑k−1
j¼1 Πj ΔX t− j is the vector autoregressive component, and αβ
Xt − k is the error correction component. Also, Xt is a p Χ 1 vector of
variables economic growth and human development, whereas ω is a
CHIKALIPAH AND MAKINA
p Χ 1 vector of constants. The number of lags is depicted by k,
whereas ηt is a p Χ 1 Gaussian white noise residual vector. Lastly, α
is a p Χ r matrix of speed of the adjustment parameters, which symbol-
ise the speed of the error correction mechanism. For the econometric
specification of the cointegrating vectors, see Appendix A.1.
5.2 | Empirical specification: Gregory–Hansen
cointegration technique
As a first robustness exercise, we follow the methodology in Gregory
and Hansen (1996) with multiple structural breaks (Hansen, 2000).
Econometrically, omission of structural breaks can cause size distor-
tions and deceptive inference when testing for cointegration (Pesaran
et al., 2000; Westerlund, 2006).6 The Gregory–Hansen cointegration
technique with structural breaks (regime shifts) follows
y1;t ¼ μ1 þ μ2 φt;τ þ α′1 y2;t þ α′2 y2;t φt;τ þ et ; (3)
where y1 denotes annual human development; y2 economic growth
in Zambia; and φt,τ is a dummy variable. Refer to Appendix A.2 for
further statistical specifications of Equation (3).
5.3 | Empirical specification: Stock–Watson DOLS
estimator
As a second robustness exercise, we estimate the long‐run elasticities
of economic growth with respect to human development by applying
the Stock–Watson DOLS estimator (Stock & Watson, 1993) that is
given as
y1;t ¼ α þ β′ y2;t þ γDα þ δ′ Dβ y2;t þ ∑Ki¼−K θi Δy2;t−i þ μt ; (4)
where y1 denotes growth in human development; y2 is the annual
economic growth; Dα and Dβ are dummies for the structural break(s),
and K epitomises the 2 order of leads and lags included when estimat-
ing Equation (4).
5.4 | Data selection
The two variables (a) economic growth and (b) human development
are annual time series covering the period 1970 to 2015, which trans-
late into 46 observations in total. In addition, economic growth vari-
able (GDP) is the annual percentage rates, with the time series data
obtained from the World Bank. Likewise, human development variable
(HDI) is the annual variation in the composite index, expressed in per-
centage, and the indices are acquired from the UNDP. See Tables A1
and A2 in Appendix A for the descriptive statistics and optimal lag
(2)
length of our series, respectively.
6
It is important to consider structural breaks in our time series data, given that Zambia
underwent episodes of unwarranted macroeconomic instabilities between 1970 and 2015,
and for specific events see Section 6.3.
CHIKALIPAH AND MAKINA 1027

5.5 | Background: Human development–growth Organisation (WHO, 2001) states that “poor health has markedly per-
nexus nicious effect on economic development in the sub‐Saharan African
region and spreading the coverage of basic health services to the poor
Figure 1 illustrates the GDP and human development annual growth could save millions of lives each year, reduce poverty, spur economic
rates over the period 1970 to 2015. Unlike GDP growth, the growth development and promote global security” (WHO, 2001, p.24).
pattern in human development in Zambia has been steady during the
period considered in this study, which is 1970 to 2015. Moreover,
the human development index has marginally increased from an
annual index score of 0.435 in 1970 to 0.579 in 2015. On the con- 6 | E M P I R I C A L R ES U L T S
trary, GDP growth has maintained an oscillating pattern (random walk)
in the same period. Furthermore, much of the unpredictable trends of
6.1 | Unit root tests
GDP growth is pointedly precipitated by fluctuation in commodity
prices, particularly copper (Chirwa & Odhiambo, 2015; Fessehaie,
The first step of our empirical analysis is to establish the integrational
2012; Kragelund, 2017; Whitworth, 2015).
properties of our time series data. To do so, we check the stationarity
The international epidemiological or health transition, which is
and unit roots of economic growth and human development by apply-
the process of falling mortality rates, gained momentum in Africa
ing the augmented Dickey–Fuller (ADF) and Phillips–Perron (PP) tests
in the early 1970s. This global transition has been facilitated by
(for econometric specifications, see Dickey & Fuller, 1979; Dickey,
improvement in health technologies, for example, antibiotics
Hasza, & Fuller, 1984; Phillips & Perron, 1988).
(penicillin) and the advent of a wide range of vaccines for hepatitis,
Table 1 reports the results obtained after performing ADF and PP
measles, polio, and tuberculosis. Additionally, the antiretroviral drugs
tests. The results show that economic growth and human develop-
have contributed significantly to controlling the HIV infection, espe-
ment are not stationary in a level form but become stationary after
cially in the SSA (Acemoglu & Johnson, 2007). The resultant changes
the first difference. Thus, our variables are integrated of the order 1
in life expectancy have had a fairly large effect on human develop-
(i.e., I(1)) and are robust to different lag lengths.
ment: improved schooling (education) and improved standard of
living (Gallup & Sachs, 2001). More specifically, life expectancy in
Zambia has increased from about 45 years in the late 1960s to
about 61 years in 2015. 6.2 | Cointegration and VECM approach
Thus, as previously mentioned, we hold the assumption that
improvement in human development has a significant effect on total We now consider the Johansen cointegration results shown in Table 2.
GDP of developing countries such as Zambia (with possible reverse It is observed that both the λMax and λTrace tests indicate that there is
causality). The empirical evidence supporting this claim is not yet con- one cointegrating vector. This implies that there is a long‐run equilib-
clusive, albeit studies conducted at micro level indicate a significance rium relationship between economic growth and human development
and positive effect associated with better health and individual pro- in Zambia.
ductivity (Strauss & Thomas, 1998). A report by the World Health

TABLE 1 Results of unit root tests

Augmented Dickey–Fuller Phillips–Perron

Test for I(0) Test for I(0)

HDI (level data) −3.41 −2.76

GDP (level data) −2.83 −3.12
Augmented Dickey–Fuller Phillips–Perron
Test for I(1) Test for I(1)

ΔHDI −4.25** −7.76**

ΔGDP −4.65** −14.87**

FIGURE 1 The human development (HDI) and economic growth
(GDP growth) rates for Zambia over the period 1970 to 2015
[Colour figure can be viewed at wileyonlinelibrary.com]
Note. Table 1 reports the unit root tests of the augmented Dickey–Fuller
(ADF) and the Phillips–Perron (PP) techniques. All specifications (ADF
and PP) include a constant and linear trend. The 95% critical value of test-
ing the significance of ADF and PP statistic is −3.50 (Enders, 2004). The
order of lag length is 2, which was determined by the Akaike's Information
Criterion and Hannan and Quinn Information Criterion reported in
Table A2 in Appendix A. GDP is the economic growth variable, and HDI
is the human development variable.
**Significance at 5% level.
1028 CHIKALIPAH AND MAKINA

TABLE 2 Johansen cointegration results

Trace test
(H0) (H1) Eigenvalue Test Statistic (λtrace) 95% CV

r=0 r≥1 0.21 16.55 15.41

r≤1 r≥2 0.14 3.28 3.76
Maximum eigenvalue test
(H0) (H1) Eigenvalue Test Statistic (λmax) 95% CV

r=0 r=1 0.21 17.23 14.07

r≤1 r=2 0.14 3.28 3.76

Note. Table 2 shows the results of estimating the Johansen cointegration test. The symbol r designates the number of cointegration vectors. The critical
values (CV) are taken from Osterwald‐Lenum (1992). The trace and maximum eigenvalue tests show one (1) cointegration equation at the 5% level.

The coefficient estimates of the cointegration vector are given by within the equation of the ECM, there are two components. First,
the error‐correction term (ECT) is the degree of the deviation from


β′ ¼ −1:00 0:168*** ; (5) the long‐run equilibrium, which was present in the prior period
ð0:020Þ
(Enders, 2004). Second, the coefficient that is assigned to the ECT sat-
isfies the role of the adjustment parameter, which shows the propor-
where the figures in the square brackets represent standard errors,
tion of the disequilibrium that is reclaimed during the consequent
and the three asterisks express significance at a 1% level. The likeli-
period. At the same time, the coefficients that are attached to the
hood ratio test is used to determine whether the coefficients of β′
lagged first differences describe the short‐run relationship between
are significant. The results show that GDP growth contributes signifi-
the endogenous variables (Enders, 1995; Filis, 2010).
cantly to the cointegration relationship, with a test statistic X2(4) of
Thus, the ECT in the economic growth equation is insignificant,
16.02, which is significant at 1% level. The values above are normal-
signifying that the long‐run disequilibrium error of the human develop-
ised coefficients for economic growth and human development. The
ment is not influencing the economic growth equation. On the other
interpretation of the cointegrating vector expressed in Equation (5)
hand, the ECT in the human development equation is significant, and
is enabled when the estimates of the equilibrium relationship between
results demonstrate that the long‐run disequilibrium of human devel-
economic growth and human development is described as
opment in Zambia get corrected in the subsequent year by adjustment
in the human development equation. This adjustment process con-
HDI ¼ þ0:168 GDP: (6)
tinues until human development reaches the new long‐run equilibrium
path. Precisely, the error correction term coefficient value of 0.546
Therefore, the results imply that in the long run, economic growth
indicates that the human development in Zambia converge towards
exerts significant positive effect on human development in Zambia.
the long‐run equilibrium at a fast speed. Additionally, we tested the
The positive relationship between economic growth and human devel-
stability of human development and economic growth in Zambia using
opment is largely in line with evidence presented in a number of empir-
ical studies (for details, see Anand & Sen, 2000; Benos & Zotou, 2014;
Fosu, 2015; Mustafa et al., 2017; Narayan et al., 2010; Ranis & Stewart, TABLE 3 Results of vector error correction model
2012; Ranis et al., 2000). The long‐run causal effect running from eco- ΔHDI ΔGDP
nomic growth to human development is due to government expendi-
ECT 0.546*** (0.223) 0.361 (0.781)
ture on health and education. In addition, there is propensity by
ΔHDI (−1) 0.047 (0.213) 0.187 (0.745)
households to spend their income on items that promote human devel-
opment, such as food, education, and health (Suri et al., 2011). In stark ΔGDP (−1) −0.076 (0.080) −0.807*** (0.280)

contrast, there is no significant evidence of causal effect running from
human development to economic growth. The plausible explanation
to our findings could be due to the following: (a) the rapidly growing
population, (b) endemic poor governance, (c) weak institutional quali-
ties, and (d) underdeveloped infrastructure, which converge and nega-
tively affect the growth in human development in Zambia (Barro,
2001; Kragelund, 2017). This conclusion is consistent with the findings
reached by Mustafa et al. (2017) and Acemoglu and Johnson (2007).
The next step is to analyse the short‐run relationship between eco-
nomic growth and human development using the VECM, and the esti-
mated results are displayed in Table 3. It is important to note that
Constant 0.026 (0.168) 0.040 (0.588)
Note. Table 3 presents results of the bivariate vector error correction
model. The serial correlation test Lagrange Multiplier statistics = 5.18
(0.203), the Box–Pierce–Ljung Q test performed on the residuals indicates
no autocorrelation and normality test: Jarque–Bera statistic = 6.62 (0.811).
The figures in parentheses are standard errors. The error correction term
(ECT) captures the speed of adjustment (convergence) to long‐run equilib-
rium after a shock. GDP is the economic growth variable, and HDI is the
human development variable.
*Significance at 10% level.
**Significance at 5% level.
***Significance at 1% level.
CHIKALIPAH AND MAKINA
CUSUM and CUSUMSQ approach. The results, not presented, showed
no evidence of any instability.
Having examined the main results of the long‐ and short‐run
dynamics of economic growth and human development, we proceed
to the next section to assess the robustness of our results. An impor-
tant caveat worth revealing is that we did not consider any structural
break in our time series. Thus, the next section will address the prob-
ability of structural changes in our time series.
6.3 | Cointegration analysis with structural breaks
(regime shift)
First, we evaluate the robustness of our baseline results reported in
Table 2 by exploiting the Gregory–Hansen (1996) cointegration tech-
nique with multiple structural breaks. The results derived from the
Gregory–Hansen cointegration approach as specified in Equation (3)
are shown in Table 4.
From Table 4, the three test statistics (i.e., ADF*, Z*t , and Z*α ) are sta-
tistically significant at 1% level, indicating that human development
and economic growth in Zambia are cointegrated. Morever, the results
also reveals 1995 as a structural break in our series. In the Zambian
historical perspective, the year 1995 looks plausible and corresponds
with (a) the aftershock of the abrupt instantaneous liberalisation of
the current and capital accounts, which resulted in inflation reaching
140% and the economy contracting by about 9% (Mwenda & Mutoti,
2011); and (b) the hurried implementation of the financial sector
reforms that involved privatisation of copper mines and numerous
other state‐owned enterprises.
6.4 | Stock–Watson DOLS estimation: Long‐run
elasticities
Second, having established the cointegration relationship between
human development and economic growth with structural breaks,
we further evaluate the robustness of our VECM results presented in
Table 3. To do so, we estimate the long‐run elasticities of economic
growth with respect to human development by applying the Stock–
Watson DOLS estimator given as in Equation (4).
The results of estimating Equation (4) are given in Table 5. Overall,
the results indicate significant and positive coefficients of economic
TABLE 4 Gregory–Hansen cointegration with regime shift
Test procedure Test statistic Break point location
ADF* −9.44*** 1995
Zt* −9.53*** 1995
Zα* −69.10*** 1995
Note. Table 4 reports the results of Gregory–Hansen test for Cointegration
with regime shifts (Gregory & Hansen, 1996; Hansen, 2000). The order of
lag length is 2, which was determined by the Akaike's Information Criterion
and Hannan and Quinn Information Criterion reported in Table A2 in
Appendix A. The critical values are taken from Gregory and Hansen (1996).
***Significance at the 1% level.
1029
TABLE 5 Stock‐Watson dynamic ordinary least squares (DOLS):
Effect of economic growth on human development in Zambia
Dependent variable: HDI
K=1
Constant 1.385***(0.504)
GDP 0.174***(0.024)
γD −0.068***(0.027)
δ GDP 0.138***(0.018)
2
R 0.782
K=2
Constant 1.350***(0.514)
GDP 0.170***(0.029)
γD −0.073***(0.031)
δ GDP 0.141***(0.017)
R2 0.791
Note. Table 5 presents results of the Stock–Watson DOLS long‐run esti-
mation of human development and economic growth in Zambia over the
period 1970 to 2015. Figures in parentheses are robust standard errors.
The robust standard errors of Stock–Watson DOLS estimates are adjusted
by using the Newey–West (1987) approach. The insignificant lags and
leads were dropped and hence not reported.
**Significance at 5% level.
***Significance at 1% level.
growth elasticities. This implies that economic growth exert a positive
effect on the human development in Zambia. Furthermore, there exist
a structural break in both intercepts, and the estimates of the inter-
cept dummies are negative and statistically significant.
7 | SUMM ARY A ND CO NC L U D I N G
R E M A RK S
This paper has sought to examine the two‐way relationship between
economic growth and human development in Zambia over the period
1970 to 2015. The three main motivations for undertaking this empir-
ical study are (a) unstable growth trends that Zambia experienced over
the period considered in this study, especially in times of mineral
recessions; (b) the sluggish growth in human development in the last
decades; and (c) the rapid growth of population, which pose an immi-
nent demographic burden for the country.7 Therefore, to estimate the
short‐ and long‐run relationships between the two variables, we
applied the following statistical frameworks: (a) augmented Dickey–
Fuller and Phillips–Perron procedures; (b) Johansen Cointegration; (c)
Gregory–Hansen cointegration technique with regime shifts; (d)
Stock–Watson DOLS estimator; and (e) VECM.
Our estimates suggested that economic growth and human devel-
opment are cointegrated in Zambia. Our findings are robust and con-
sistent with different estimation techniques. Furthermore, we
7
Some of the challenges include, but are not limited to, the rising youth unemployment, short-
age of affordable homes, rising crime, and overcrowding in public hospitals and schools.
1030
documented no significant short‐run effect between economic growth
and human development. We found that economic growth has a long‐
run effect on human development in Zambia, and the reverse causality
does not hold. In spite of that, the impact of economic growth on
human development was significantly small over the period 1970 to
2015.
The two important policy implications of our empirical findings to
Zambia are as follows. First, policymakers in the country must focus
on human development as the optimal measure of genuine economic
prosperity and the only instrument to promoting economic mobility.
In that respect, economic policies should focus on improving the qual-
ity of health and education, creating a sound business environment,
and strengthening institutional qualities in the country (Kubiszewski
et al., 2013). Second, the Zambian government must deepen the
domestically driven economic diversification in sectors such as agricul-
ture, manufacturing, and tourism to confront the chronic dependence
on the mining sector.
ACKNOWLEDGEMEN T
We are grateful for comments and suggestions from Daniel Opolot,
anonymous referees, the editor, and seminar participants at University
of Cape Town. This paper's findings, interpretations, and conclusions
are solely those of the authors and cannot be taken to represent those
of the University of Cape Town and University of South Africa. All
remaining errors are our own. The authors declare that there are no
known conflicts of interest associated with this article and there has
been no financial support for this work that could have influenced
its outcome.
ORCID
Sydney Chikalipah https://orcid.org/0000-0002-1399-3641
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CHIKALIPAH AND MAKINA 1033

APPENDIX A From Table A1, it can be observed that real GDP growth in Zambia
averaged 3.3% over the period 1970 to 2015. Additionally, the highest
TECHNICAL APPENDICES
economic growth of 10% was recorded in 2010, with economic con-
traction of about 9% witnessed in 1994. In the same way, growth in
A.1 | The vector error correction model human development averaged merely 0.7% in the same period. Nota-
bly, human development in Zambia deteriorated in the 1980s and
Extending from Equation (2), the number of cointegrating vectors is 1990s due to economic challenges coupled with the advent of
deduced by two important statistics, maximal eigenvalues (λMax) and HIV/AIDs (Mara, 2016). Nevertheless, improvement in human devel-
(λTrace), which carries the following equation forms: opment has had a steady progress since the early 2000s (Deeks,
  Lewin, & Havlir, 2013; WHO, 2014).
λMax ¼ −N In 1 − b
λrþ1 ; (1:1)

p   A.4 | Selecting the optimal lag length

λTrace ¼ −N ∑ In 1 − b
λi ; (1:2)
i¼rþ1
In time series analysis, the crucial empirical issue that often arise is the
where N indicates the number of observations, r represents the choice of an appropriate lag length. The choice of optimal lag length is
number of cointegrating vectors, and b
λ is the estimated eigenvalue. vital given that economic processes are dynamic (Scott Hacker &
Osterwald‐Lenum (1992) provides the critical values for λMax and Hatemi‐J, 2008). Thus, with a view to select the optimal lag length
λTrace. for our series, we used multivariate criteria of the vector
autoregressive versions, which are the Akaike's Information Criterion
(AIC), Hannan and Quinn Information Criterion (HQIC), and the
A.2 | The Gregory–Hansen cointegration technique
Schwarz's Bayesian Information Criterion (SBIC).
(with regime shift)

In Equation (3), to capture structural change, the dummy variable must TABLE A2 Selection of optimal lag length
be defined such that
Chosen lag length
(
0 if t ≤ φt;τ Information criterion 0 1 2 3 4
φt;τ ¼ ; (2:1)
1 if t > φt;τ AIC 3.08 3.10 3.03 3.05 3.05
HQIC 3.08 3.12 3.05 3.10 3.12
where τ signifies a possible structural break date in our time series.
SBIC 3.08 3.07 3.10 3.17 3.21
The test statistics of Equation (3) are given by
Note. Table A2 reports the true lag length of the Akaike's Information
ADF* ¼ infτϵT ADFðτÞ; (2:2) Criterion (AIC), Hannan and Quinn Information Criterion (HQIC), and the
Schwarz's Bayesian Information Criterion (SBIC). The values in bold signify
the optimal lag length for a particular information criterion.
Z*t ¼ infτϵT Zt ðτÞ; (2:3)

Table A2 shows the results of evaluating the true lag length of our
Z*α ¼ infτϵT Zα ðτÞ: (2:4) sample. On the basis of our results, the information criteria provided
by AIC and HQIC both selected a model with two lags, although the
SBIC nominated a model with one period lag. Thus, based on AIC
A.3 | Descriptive statistics and HQIC information criteria, we run our estimation models with
two lags.
The descriptive statistics of our two variables, economic growth and
human development, are shown in Table A1.

TABLE A1 Descriptive statistics

Period = 1970–2015; N = 46

Mean SD Min Q1 Median Q3 Max

ΔHDI 0.67 1.64 −3.02 −0.48 1.01 1.99 2.93

ΔGDP 3.30 4.26 −8.63 −0.34 4.21 6.71 10.3

Note. Table A1 presents the summary statistics (mean, standard deviation

[SD], minimum [Min], first quartile [Q1], median, third quartile [Q3], and
maximum [MAX]) for our two variables, economic growth (GDP) and
human development (HDI), that enter our estimation models. N depicts
the number of observation.

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